Sales Contract Definitions and Formation (PDF)

Definition, formation, and other related issues in the contract for sales of movables In discussing contract for the sale of goods definition, formation and other related issues will be discussed. In defining law of sales first a comparative analysis will be made with reference to different definitions forwarded by different scholars and different legal systems. The definition of law of sales in the Ethiopian civil code will be presented. Accordingly the general definition of law of sales will be discussed compared with the definition of the term under the Ethiopian law of sales and with each element of the term. Upon successful completion of the chapter on the formation of contract of sales, you are expected to: forward different definitions of contract of sale pinpoint the distinguishing features of the definitions define contract of sales in the civil code analyze the terms in the definition of sale in the civil code analyze the definition of sales in light with the definition of contract of the general contract provisions List the elements for the formation of contract in general state the elements for the formation of contract of sale analyze the elements for the formation of contract in general and contract of sale state the peculiar elements for the formation of contract of sale be able to give grounded legal advice as to whether there is valid contract of sales General definition of contract of sales So far there is no universally accepted definition of sales contract. The definition of sales contract differs from legal system to legal system. The Roman law which is considered to be the origin of civil law legal system, for example, defined sales as \"a contract by which one person becomes bound to deliver a subject to another with the view of transferring the property in consideration of money\" this definition seems to include the basic elements. Accordingly sales contract shall be a contract include a thing as a subject of sale consideration expressed in money deliver with the purpose of transferring ownership According, to the Roman law in the absence of the elements, the existence of sales contract is questioned. The French law being similar with the Roman law has also defined sales verbally as: \"Sale is a contract by which the one binds himself to deliver a thing and the other to pay for it\" Even though this definition has incorporated the three elements that is one party, obligation to deliver a thing and obligation to pay for it, obligation of transferring ownership is for example excluded. The Napoleon code, which reproduces the traditional meaning under Article 1582 and 1603, shows that the render obligates him to deliver the thing and warrant it. Although the definition doesn\'t clearly show transfer of ownership and who the render is, Roman times don not have such obligation; the obligation of the render to transfer ownership can be inferred from Article 1599. Hence transfer of ownership is an element of the meaning of sales in the napoleon code unlike the French one. The German code on the other hand clearly includes the obligation to deliver the thing and procure ownership under Article 433. There seems to be difference in the definition of the Napoleon code and German code in clearly stipulating the obligation to deliver. The uniform sales act termed sale of goods as \"agreement whereby the seller transfers the property in the goods to the buyer for a consideration called the price\". It is not untrue to assert that the requirements of sales of goods in the modern common law have been enshrined under this definition. The uniform commercial code also defines sales as consisting of passing of title from the seller to the buyer. Thus, it is worth noting that neither delivery nor payment is necessary in contract of sale of goods in present sales. Normally an agreement to sale and contract of sale are different in that agreement to sell does not include conveyance while contract of sale includes conveyance as an intrinsic element of its. In an agreement to sale, the contracting parties agree to sell a certain thing for specified price without making delivery an element of their contract. Sales contract is generally defined as a \"contract whereby one person who is called the render, obligates himself to transfer to another the ownership of a thing, while the other who is the buyer, obligates himself to pay to him its value in money\". This definition seems to give the idea of modern sale. Definition of contract of sales in Ethiopia Sale is one way by which rights are assigned under the Civil Code of Ethiopia. There are different ways by which rights are assigned in addition to contract of sale. Sale has been defined under Article 2266 of the civil code as „a contract whereby one of the parties, the seller, undertakes to deliver a thing and transfer its ownership to another party, the buyer, in consideration of a price expressed in money which the buyer undertakes to pay him'. The essential characteristic of sale lies in the obligation of the seller to deliver and transfer ownership and in the obligation of the buyer to pay a price. Other obligations of the parties are consequential in the sense that they are implied into the contract (by law), unless clearly excluded by the agreement of the parties. Contractual obligations are different from one another both in their nature and effect. For example, in the English law of contracts, obligations are divided into two: conditions and warranties. Conditions are essential terms of the contract and hence determine the nature of the contract. On the other hand, warranties are not essential terms and do not determine the nature of the contract. Moreover, in English law, it is only breach (non performance) of an obligation, which can be characterized as condition that results in the cancellation of the contract. If one of the parties fails to perform one of his obligations and the obligation is a warranty, then the remedy of cancellation is not available as a remedy to the other party. Ethiopian law is apparently similar to English law of contracts, at least in terms of the above distinction. This is because, under Ethiopian law, it is only fundamental non-performance that results in the cancellation of the contract. Non-performance is fundamental only when it affects the essence (essential terms) of the contract. Non-performance related to a minor obligation of the debtor is remedied by specific performance or damages but not by cancellation. From this one can learn that contractual obligations are different from one another both in their nature and effect. Similarly it is only certain obligations that determine the nature of a given contract. Others may be incidental or non-determinative. The definitional Article which provides two obligations of the seller and one obligation of the buyer is not intended to deal with all the obligations. The buyer and the seller have additional obligations. For example, the seller, according to Article 2273, has the obligation to warrant against partial or total dispossession and against defects and non-conformities. A question as to why these obligations are not mentioned in Article 2266 may be raised. This is because the two sets of obligations are different in their nature and effect. The first set of obligations of the seller stated in Article 2266, determine the nature of the contract. That is to mean, in any contract, if the obligation of one party is to deliver a thing and transfer ownership and the obligation of the other is to pay a price, expressed in terms of money, that contract is considered as a contract of sale. That means these obligations are preconditions for the existence of contract of sale. On the other hand, the other set of obligations stated in Article 2273 are not essential obligations. The parties can for example expressly agree that the seller does not have the obligation to make such warranties. The contract, however, does not change its nature. It is still a contract of sale. However, unless expressly and completely excluded by the parties, the seller has the obligation to warrant against partial or total dispossession and against defects and non-conformities. Hence, we can call these obligations as incidental, or non-essential or implied or consequential obligations. In a contract of sale, the obligations that are stated under Article 2273 are known as incidents of sale. Whereas those stated in Article 2266 are essential; in their absence, the contract could be anything but not sale. There are other essential elements of the definition of sales contract. Consider the following. It is Contract Among the elements of the definition of sale its being contract is one. Contract of sale is a special kind of contract. The parties should comply with the essential conditions for the validity of contracts in general. Thus the parties must be capable, that is they should not be minor, insane and infirm, judicially interdicted person, or legally interdicted person. There must be an offer and acceptance for the formation of sales contract. The consent of the parties, which is expressed through offer and acceptance, should also be free from defect. Mistake, fraud, duress, unconscionable nature of the contract undue influence renders contract of sale invalid. The obligations of both the buyer and the seller must be defined, lawful and possible. If the parties to the contract of sale fail to comply with these requirements the contract would be invalid. The fact that contract of sale is a contract does not, however, mean that it does not have peculiar natures to which the coverage of general contract is not enough. Contract of sale has certain peculiar characteristics different from the definition of general contract. Such peculiarity can be inferred from the definition. Accordingly, one of its peculiarities is that it must be concluded between two parties, which are called the seller and buyer. Two Parties There must be two distinct parties to a contract of sale, as a person cannot buy his own goods. But this does not mean that the parties to the contract of sale are only two individuals. Two persons is the minimum requirement. Thus, if Boron, Becky, and Naol jointly own a refrigerator, they can sell it to Anatoly, Becken, Haweny and Na'ansy. Boron, Becky, and Naol a re sellers and have to discharge the obligation of the seller jointly. Similarly, Anatoly, Becken, Haweny and Na'ansy are buyers and they should jointly pay the price and take delivery of the refrigerator. These two distinct parties are the buyer and the seller. The seller is the person who assumes the obligation to deliver a thing while the buyer is the person who assumes the obligation to pay money as a price. If, for instance, students of a hostel take meals with a mess run by themselves on cooperative lines, there is no contract of sale as there is no buyer and seller. This is because the students are joint owners of the meals they are consuming. The generally assumed fact is that every student is consuming his own goods on the basis of the understanding that he has to restore what he has consumed to get the mess to continue to provide meals for its members. However, this does not mean that no sales contract may exist among joint owners with respect to the thing they own jointly. If, for example, Ato Merga and Ato Alem own a house jointly, Ato Alem may sell his share and such juridical act is under the definition of sales contract and both parties can be considered as buyer and seller. What should be born in mind is that whether, in the later example, the joint owners are "part owners" with divisible share in the house. Sometimes there might be contractual transaction concluded by one party with himself. An agent may possibly sell his car for himself pursuant to Article 2188 although it is subjected to cancellation by the principal. It is questionable if it can be sale contract with the meaning of article 2266 of the civil code. Delivery and Transfer of ownership The owner of the thing must agree with the other person to deliver and transfer ownership of the thing. A mere agreement to transfer possession cannot be termed as a contract of sale. The seller must transfer or agree to transfer ownership so that contract of sale is concluded. This essential characteristic distinguishes many contracts from contract of sale. For example, in the contract of letting and hiring the owner (the lessor) of a thing delivers the thing to the other person (the lessee) but ownership is not transferred. For example, Mr. X hires a horse with its cart from Mr. Y at 20 Birr per day for a week. Mr. X takes the horse and used it for transporting certain goods from one place to another. Mr. Y (the owner) did not transfer the ownership to the Mr. X (the lessee) and he did not agree to transfer ownership. In cases of contract of bailment, the owner (the bailor) also delivers the thing to the other person (the bailee). Nevertheless, the owner does not transfer ownership to the bailee. This is because transfer of possession by delivery transfers ownership although transfer of possession does not necessarily show transfer of ownership. The Thing The definitional provision also puts "things" as an essential element of sale. The subject matter of contract of sale must be "things". Normally all things cannot be subject matter of sales contract if they cannot be appropriated by human beings. Someone who agrees to sell a moon cannot be said to have concluded contract of sale for the thing is not good because it cannot be appropriated. The word thing shall, accordingly, refer to goods, as it is only goods, which can be possessed and owned. As far as goods is concerned, there is no direct meaning of goods in the Ethiopian civil code. Be that as it may, the meaning of "goods" can be inferred from different Articles as of 1126. Art 1126 says verbally "All goods are movables or immovable" Although all goods are either movables or immovable all movables or immovable may not be "goods" Article 1127 of the Civil Code gives the meaning of movables under the title of corporal chattels. According to this provision, things which have material existence and can move themselves or be moved by themselves without losing their individual character" are said to be corporeal chattels. Assimilated incorporeal chattels are also included under things. If the corporeal chattel is to be manufactured or produced by the person who undertakes to deliver the thing, the main materials for the production of the thing shall be provided by the seller. If the party who is going to receive delivery provides the necessary materials for the production or manufacturing of the thing it is said to be contract of service. The party who is delivering the thing is giving his service not a thing. Article 2269 of the civil code is destined to connote the difference between contract of service and sales contract. The Price In addition to goods consideration expressed in terms of money is also an essential element of the definition. The consideration for contract of sales must be in cash. This consideration in cash is price. The apparent peculiarity of sales contract from the general contract is the presence of consideration as its element. Thus, a contract of sale must involve consideration in return for transfer of ownership. Consideration normally co nnotes reciprocal obligation of the parties assumed in the contract. If consideration is required to exist there shall be corresponding obligation and one obligation shall have inducement role on the other corresponding obligation. If there is no consideration, it is a contract of donation not a contract of sale. The basic difference between contract of donation and contract of sale is that in donation there is no consideration while in contract of sale there is consideration. The price to be paid and the goods to be delivered shall exist as obligation of the buyer and seller. They shall also have inducement relationship, as consideration is one element of sales contract. If the consideration is in kind it is a contract of barter not a contract of sale. Thus, it is essential that money be used us a medium of exchange. Barter in which goods are to be exchanged for goods is not sale albeit its being moot if it is contract at all. There must be price in terms of money. However, this does not take as to the extreme that negotiable instruments like bills of exchange or check cannot be used. ? Can you say there is a contract of sale if the party agreed that part of the price should be paid in kind? Abebe sold his Acer® desktop computer to Belete. According to their agreement Bekele would deliver two 21 inch Sony® TV sets and 1500 Birr as a consideration for the computer. Abebe has taken delivery of the TV sets and Belete has also taken delivery of the Computer. ? Is there contract of sale between Abebe and Belete? Sale and agreement to sell are treated separately in certain countries albeit both might be included in contract of sale. Contract of sales is sometimes considered to be a generic term including sale and an "agreement to sell". Sale refers to contract of sale where the goods are transferred to the buyer immediately at the time of the conclusion of the contract. It is referred to as an "absolute sale". A contract where transfer of an ownership right is effected immediately, exemplifies such a contract. Although delivery might be made in the future sale is an executed contract if the agreement is sale or absolute sale. Agreement to sell is on the other hand an agreement where transfer of right of property is effected at a future time or after the fulfillment of certain conditions. It is an excluder contract. There is no transfer of property right at the time of the formation of the contract the conveyance of property takes place later following the formation of the contract. Such distinction has not been clearly provided in the Ethiopian Civil code. The definitional provision of Ethiopian law of contract seems to deal with contract of sale in the context of an agreement to sell; sale implying immediate conveyance of property creating jus in rem i.e. right to enjoy goods against the whole world seems to be excluded. The definition of general contract and the definition of the contract of sale are evident. As sales contract is a contract, the definition of contract is applicable on it. Accordingly; as a contract is "an agreement whereby two or more persons as between themselves create vary or extinguish obligation, the obligations created by sale is also between the contracting parties. In addition to this Article 2266 of the civil code connotes one contracting party undertakes to discharge his obligation towards the other contracting party. This implies that sale under Ethiopian civil code is an excluder contract. In addition, there is also an agreement which looks like an agreement to sale that is promise of sale. However, promise of sale is an agreement where one party gives his word to sell a certain thing for a certain price. But, this is not a contract of sale strictly speaking. The contract of sale is to be concluded later not at the time of promise of sale. The promise of sale is preliminary contract for sales contract. Formation of contract of sales Having seen a general introduction to contract of sales and its definition, it is worthy discussing the formation of contract of sale. In discussing the formation of contract of sale a comparative analysis will be made between the elements in the general contract provisions and provisions in the law of sales. In addition, the peculiar elements of the formation of sales contract will be analyzed and discussed. Contract of sale is, like any other contract, formed when the parties express their agreement on the subject matter of the contract and its price. That is to say, the contract of sale is completed when the parties have expressed their consent to the terms of the contract. Thus, to say there is consent an offer made by one of the parties must be accepted by the other in a way that fulfills the requirements provided under general contract provisions. The parties must define the subject of their dealing with precision and their agreement shall be in special form when such form is necessary. As a contract, a sales contract is regulated by general contract provisions. The requirements for the formation of contract should be complied with. Generally for the formation of contract offer and acceptance are indispensably required. Either the buyer or the seller shall propose to enter into a contract with specified terms if accepted by the offeree. The buyer or seller to which proposal to enter into a contract has been made should also express his assent without reservation. Even though contracting parties might make invitation to treat, no contract of sale can be formed by mere invitation to treat in the absence of offer and acceptance by which the consent of the buyer and seller is expressed. The pretence of the parties is not again a sufficient formation of the contract of sale. The consent shall be free from defect and the parties shall have intention to be bound. The object of the contract shall also be sufficiently defined, lawful, moral and possible pursuant to Art.1714, 1715, 1716 provisions of the civil code. The object of the contract of sale is principally delivering the thing and paying the price. The thing can be an existing thing belonging to the seller or third party or it might be a future thing. What is mandatorily required is that the thing to be delivered shall be sufficiently defined, lawful moral and possible. The corresponding obligation assumed by the buyer is payment of price. Price as a requirement of consideration has been put in a way that creates peculiarity in contract of sale. Sufficient definition of the price shall enable the courts ascertain the price. However, lack of sufficient definition to that effect does not make the contract subjected to invalidation as it is provided under Article 1714. Article 2271 of the civil code fills the possible gap. However, if the parties do not determine the price of the thing, and if the price not is determinable, there is no contract of sale. The parties shall make the price at least determinable by referring to the arbitration of the third party according to Art.2271. Art. 2271. Price estimated by third party \(1) The price may be referred to the arbitration of a third party. \(2) There shall be no sale where such third party refuses or is unable to make an estimate. According to this Article, to say that a contract of sale is formed the party must specify the price in their contract or refer to the arbitration of the third party. And the price referred to the arbitration of the third party must be determined as agreed. Otherwise, there would not be formation of the contract of sale. For example, Aden agreed to buy a used computer from Bushra. But they could not determine the price of the computer. Thus, Aden agreed to pay the price determined by Guled who is a mechanic. Aden has taken delivery of the computer. Unfortunately, Guled died in car accident before he determined the price. Thus, there is no contract of sale in this hypothetical example as the arbitrator is unable to determine the price of the used computer. ? Can the parties refer the determination of the price to the market force? For example, can the party agree that the price would be the market price to be determined at some future date? In some jurisdictions, for example in India, the parties may refer the price to be determined by a magazine which contains a list of items and their price and which is published regularly. The same is true in Ethiopia. For example, in Ethiopia, Ethiopian Tea and Coffee Authority, announces the price of coffee through Ethiopian Radio. Thus the parties can agree that their price is the price to be announced by Ethiopian Tea and Coffee Authority. Still, there will be no contract of sale if the authority fails to announce the price on radio. It is not necessary that the third party be a natural person. Price of the thing sold can also be determinable when the thing has a current price or market price or when the seller normally deals in the thing sold. In such situation, the price would be the market price or the price normally charged by the seller. In addition to what has been said, formal requirement is also an intrinsic element of contract of sale when it is provided either by their agreement or by law. It can be inferred, therefore, that no special formal requirement is peculiar for contract of sale. Performance of contract of sales of movables Definition, formation, and other affiliated issues in the contract for sales of movables have been discussed so far. Having made these considerations, discussion on performance of sales contract will be made. As performance of sales contract refers to carrying out of the obligations assumed by the contracting parties, analyzing the obligations of the seller, obligations of the buyer and common obligations of the seller and buyer imposed on the parties by the custom, good faith and the provisions of the law is be necessary to understand performance of sales contract.. Upon successful completion of the chapter on the performance of sales contract, students are expected to advise parties on the obligations of the buyer advise parties on the obligation of the seller advice parties on common obligation of the parties differentiate warranties and conditions differentiate express and implied warranty differentiate the incidental obligation related to the principal obligation Obligations of the seller The seller has certain obligations which shall be performed. The seller assumes certain obligations under the contract of sales. These obligations are the obligation to deliver, the obligation to transfer ownership, the obligation to warrant the buyer against dispossession defects and non-conformity to the contract and other ob ligations. Failure to perform these obligation amounts to non-performance. In addition to these obligations the seller does have shared obligations with the buyer. Obligation to deliver The seller assumes certain obligations under the contract of sale. These obligations are the obligation to deliver, the obligation to transfer ownership, the obligation to warrant the buyer against defects and non-conformity to the contract and other obligations imposed on him by the contract of sale and gap filling provisions pursuant to Article 2273 of the Civil code. Failure to perform these obligations amounts to non- performance of sales contract. The characteristic obligation of the seller is to deliver the thing sold. Delivery generally refers to transfers of possession willingly. Delivery takes place in accordance with the contract and the default rules of the law. It consists of handing over in not only the principal subject of the contract but also its accessories. The thing to be delivered shall, however, be the agreed thing in quantity and type. Art. 2274. - Essence of obligation. Delivery consists in the handing over of a thing and its accessories in accordance with the contract. Modes of Delivery: Delivery can be conducted in different modes. These modes of delivery can be actual delivery, constructive delivery, (constitutum possessorium), traditio longa manu, traditio brevi manu and symbolic delivery. Different legal systems may apply different modes of delivery and modes of transfer of ownership. Actual delivery is the physical handing over of the thing directly to the buyer or his representative. Actual delivery is the most frequently used mode of delivery. Article 1140 of the civil code shows the possibility of actual delivery by entitling the party to whom delivery is made the actual control over the thing. Constructive delivery (constitutum possessorium) does not involve physical handing over of the thing to the buyer. It is employed when the thing is already in possession of the buyer; when the thing is to remain in possession of the seller after the contract of sale or where the things is in the possession of the third party and the buyer decided to keep the thing with that third party. For example, X has hired his horse to Y and Y is using the horse for driving a cart. If X agrees to sell this horse to W and decides to keep the horse with Y, there is constructive delivery made by X. Constructive delivery under Ethiopian laws refers to delivery when the seller is to remain in actual control of the thing after the conclusion of the contract. Article 1145 shows things which are certain and things pertaining to generic species which have been individualized are deemed to have been transferred when the holder declares that he detained the things on be half of the new possessor. This provision clearly shows the possibility of transfer of possession by constructive delivery although the seller can be holder. Sometimes delivery when the buyer in possession of the thing to be sold is termed as traditio longa manu. Traditio longa manu does not again show actual handing over of the thing. The seller points out the buyer where the thing is and makes it ready to be taken. The buyer can take the thing when ever he/she pleases. On this mode of delivery actual handing over of the thing is not possible for any reason at the time of conclusion of the contract. As temporary hindrance of actual handing over does not affect possession right pursuant to Article 1142 and possessor may exercise his right indirectly pursuant to Article 1141, the possibility of traditio longa manu can be inferred from these provisions. Delivery when the things are in the possession of the third party is sometimes termed as traditio brevi manu. In traditio brevi manu the conclusion of the contract is the way of delivery. This mode of delivery is effected when the buyer has been in actual control of the thing before the conclusion of the contract. This avoids unnecessary repeated retaking back of the thing which has been in the hand of the buyer and sold to the buyer. Since there is possibility of actual control of the thing by the buyer before the conclusion of the contract, the application of traditio brevi manu also seems to be indisputable. It is indeed impractical to give subject of sale, which has been in the hands of the buyer, to the buyer and re-take it. Symbolic delivery is similar to constructive delivery in that it does not effect the physical handing over of the thing sold. But it is different from constructive delivery as it involves the physical handing over of other things that represent the things sold. For example, if the seller gives the key of the store to the buyer, he makes symbolic delivery. Similarly, giving bill of lading to the buyer is a symbolic delivery. The obligation of the seller to deliver the thing includes the obligation to deliver the agreed amount as well as the obligation to deliver the thing at an agreed time and place. Quantity to be delivered: The seller has to deliver the agreed quantity of things. If the seller delivers in excess or in short of the agreed amount, there is non-performance of contract. The buyer may accept or reject the things delivered at his discretion. If the buyer accepts the quantity that is less than the agreed amount, he has to pay the agreed price for quantity delivered but he cannot require additional delivery. In cases of excess quantity, the buyer has to pay a contractual price of the quantity delivered. The parties to the contract of sale, according to Article 2275, may agree on delivery of "about certain quantity" of specified goods. In such case there is a possibility of delivery of a thing, which is determined by gap filling provisions, where the seller has the discretion to decide the exact quantity to be delivered. However, the seller has no duty to determine the exact quantity if the stipulation about certain quantity was made for the sole interest of the buyer. Accordingly, this benefit might be given to the buyer where „it appears from the circumstances that such stipulation has been included in the contract in the sole interest of the buyer'. For instance, imagine that Fitsume is celebrating a graduation ceremony. He invited 50 persons to the ceremony. Since Fitsume was not sure about the number of persons who would show up, he ordered around 60 bottles of soft drink from Lelisa. In this case, we understand from the circumstance that Fitsume should determine the exact quantity. ? The parties to the contract of sale agreed to deliver "about certain quantity" of specified goods. Can the seller deliver the quantity as large as he wishes or as small as he wishes? The difference between approximate quantity and actual quantity delivered, whether the decision is made by the seller or buyer, should not exceed ten perce nt in cases of the whole cargo or five percent in other cases. For example, if Awash agrees to deliver about 400 Kilograms of sugar to Yared, he cannot deliver less than 380 kilograms or more than 420 kilograms as five percent of 400 kilogram is 20 kilograms. Time and Place of delivery: The seller cannot deliver the thing whenever and wherever he likes. He must observe the provisions of the law and that of the contract. The seller should deliver the thing sold at agreed time. Failure to deliver at such time amounts to non-performance of the contract. However, the parties may fail to specify the time of delivery or the date of delivery cannot be inferred from the will of the parties, the seller shall deliver the thing as soon as the buyer requires him to do so according to article 2276. It must be born in mind; however, that delivery shall be made immediately is meant to show that delivery of the thing shall be simultaneous with the payment of the price unless there is contrary agreement. If the parties agreed on the time of payment of the price, but fail to specify time of delivery, the seller should deliver at the time of payment of the price as per Art.2278. The seller may in such case retain the thing until payment is made. Where the parties have agreed that delivery shall take place during a given period, it shall be for the seller to fix the exact date of delivery unless it appears from the circumstances that it is for the buyer to do so. Regarding this Article 2277 provides as follows: Where the parties have agreed that delivery shall take place during a given period, it shall be for the seller to fix the exact date of delivery unless it appears from the circumstances that it is for the buyer to do so. For example, if the seller agreed to deliver the thing sold between July14 and August 16, he has to make delivery during this period. However, the buyer determines the exact date where circumstances may give such power to determine the exact date of delivery to the buyer. For example, if Y agrees to deliver a wedding cake between June 6 and 19 to X, it is clear from circumstances that X needed the cake on the day of his wedding. Thus, it is X who should decide the exact date according to Article 2277 because Y has no interest in the date of delivery and for that matter Y does not know the date of wedding. As far as place of delivery is concerned, unless otherwise agreed, the seller shall deliver the thing at the place where, at the time of the contract, he has his place of business or, failing such, his normal residence. On the other hand, where the sale relates to a specific thing and the parties know the place where such thing is at the time of the contract, the seller shall deliver the thing at such place. The same is true where the contract relates to fungible things selected from a stock or a specified supply or to things, which are to be made or produced in a place known to the parties at the time of the contract. Obligation to Transfer ownership The seller shall take the necessary steps for transferring to the buyer unassailable rights of ownership over the thing. Ownership transfers upon transfer of possession. Possession transfers upon delivery. Thus, the necessary step to be taken by the seller to transfer ownership is to deliver the thing to the buyer in any of the modes of delivery discussed in the previous section. However, delivery alone does not transfer ownership. The seller must be the owner of the thing sold. It is the basic principle of property law that a person can transfer no greater right in property than he himself possesses. For example, if Kebede steals a watch from Degu and sells it to Boron, Boron has no greater title to the watch than Kebede possessed. Thus a non-owner cannot transfer ownership. This principle is called nemo dat quod non habet in Latin. Thus the obligation to transfer ownership includes the obligation to have a good title. The rule that holds a person can transfer no greater right than his own suffers an exception. That is, this rule does not apply in certain cases. This exception is possession in good faith. The principle of possession in good faith holds that a person who in good faith enters for consideration into a contract to acquire ownership of a corporeal chattel will become owner of that corporeal chattel by virtue of this good faith when he takes possession of such chattel. Good faith is honesty in fact in the transaction. The buyer is in good faith when he purchased the thing with an innocent belief that the seller is an owner. Obligation to warranty title, defects, and non - conformity The obligation of the seller to warrant is extended to warranty of dispossession, defect, and nonconformity. Warranty is a contractual promise by the seller regarding the quality, character, or suitability of the goods he has sold. Warranty is classified into express warranty and implied warranty. Express warranty is created when the seller makes a statement of facts or a promise to the buyer concerning the goods that become part of the bargain. The seller who gives an opinion or recommends the goods does not create an express warranty. Whether a statement made by a seller is interpreted as an opinion or as an express warranty often depends on the relative experience and knowledge of the buyer and the seller. If the seller deals in the types of goods he is selling and the buyer does not deal in such goods and knows little about them, a statement by the seller about the quality or character of the goods might be interpreted as an express warrant y. On the other hand, if the buyer is a dealer in such goods and has had experience and knowledge similar to that of the seller, the same statement might be interpreted as an expression of an opinion. In negotiating, a seller may use descriptive terms to convey to the buyer an idea of the quality or characteristics of the goods Similarly a seller might use pictures, drawings, blue prints or technical specification or in some cases a sample or model. Implied warranty is responsibilities imposed by law on the seller for the quality of goods he sold. Implied warranty arises whether or not the seller has made express promises as to the quality of the goods. Implied warranties are imposed on the seller in the interest of promoting higher standards in the market place for the following three reasons. First, the buyer commonly has little or no opportunity to examine goods carefully before making a decision to buy them. This might result in information asymmetry. Secondly, the buyers are often not in a position to test the goods to determine their quality prior to buying them due to complexity and the nature of many goods. Lastly, the seller or manufacturer of such goods is in a much better position to make a thorough examination or test of the goods to determine their adequacy and quality. The obligation of the seller to warrant dispossession, defect and non-conformity can in certain circumstances be set aside by the agreement of the parties. A\) Warranty of dispossession: Warranty against dispossession has been provided as oan bligation of the seller in Article 2282 of the civil code. The seller shall warrant the buyer against any total or partial dispossession, which he might suffer in consequence of a third party exercising a right he enjoyed at the time of the contract. In addition to assuring the buyer that the seller is a rightful owner the obligation to transfer ownership includes the obligation to transfer unassailable rights over the things. The seller may be an owner of the thing sold. His title to the thing is not defective. However, the seller may never encumber the thing sold with some rights of third parties; chief among such encumbrance is pledge and liens. If the seller transfers ownership over the thing encumbered with pledge or liens, the seller fails in his obligation to transfer unassailable rights over the thing according to Art. 2281 which provides that: The seller shall take the necessary steps for transferring to the buyer unassailable rights over the thing. To perform his obligation of transferring unassailable rights, the seller is duty bound to warrant the buyer against total or partial dispossession. Warranty against dispossession is an implied warranty which does not depend upon the agreement of the parties. But this implied warranty against dispossession is not effective in the following legal limits. These legal limits are when the buyer is aware of the threat of dispossession, when the parties excluded or restricted warranty against dispossession, when the buyer fails to join the seller in the proceeding against him and when dispossession is due to the act or contribution of the buyer. The awareness of the buyer about the threat of dispossession is among the limits of warranty of dispossession. The buyer may sometimes know that there is a possibility that a third party would dispossess him. For example, the buyer may know that the thing has been given as a security for loan. Where, at the time of the contract, the buyer knows that he risks dispossession, the seller shall not warrant the thing unless he has expressly undertaken to do so. Since it is implied warranty, the presumption is that the parties know that there is warranty of dispossession. If the knowledge of the buyer is established, however, the implied warranty shall not be considered. If the buyer is aware of the risk of dispossession he is expected to have taken advantage of the risk in their negotiation to enter in a contract of sale. Even though the buyer is aware of the dispossession, warranty shall be due where dispossession is due to the falling in of a pledge made by the seller. The basic reason for favoring warranty against dispossession while the buyer knows the risk is the role of the seller in avoiding dispossession by performing the obligation for which the thing is pledged. Relieving the seller from warranting dispossession owing to falling of the thing in pledge directly implies that the seller will not discharge his obligation secured by pledge. Failure to discharge the obligation may not affect the seller at least in his interest in the pledged property. Exclusion or restriction of warranty against dispossession is also another limit of warranty of dispossession. The parties exclude the warranty against dispossession when they agree that the seller would not be responsible if the third party dispossesses the buyer. Contracting parties can exclude or restrict the above warranty which emanates from the law. But the law provides some mandatory and gap-filling provisions regarding an agreement to exclude or restrict the legal warranty against dispossession: Art.2284.\_\_ provisions excluding or restricting warranty. Provisions which exclude or restrict the warranty shall be construed restrictively; Unless otherwise expressly agreed, such provisions shall impose on the seller the obligation to return the price to the buyer, in whole or in part, in cases of dispossession; and A provision excluding or restricting the warranty shall be of no effect where the seller has intentionally concealed that a third party had a right on the thing or dispossession is due to the act of the seller. In addition to the aforementioned grounds, the failure of the buyer to join the seller in the proceeding against him is also another limit of implied warranty of dispossession. Third parties may sue the buyer. In such case, the buyer must inform the seller that he had been sued. The seller may raise objections in the court and may win the case. He shall, therefore, join the seller as a party to the proceedings instituted against him in due time. However, if the seller is not joined in the proceedings without any fault on his part, he shall be released from his warranty where he can show that the proceedings might have had more favorable issue, had he been joined in due time. Finally, when dispossession is due to the act or contribution of the buyer, dispossession of warranty is limited. If the dispossession is due to the buyer, for example, the thing is attached by the creditor of the buyer and sold by auction according to the order of the court. The seller will not warrant such dispossession. When the dispossession is also due to the act of the buyer, the seller is released from his warranty. If the buyer acknowledges the right of a third party outside judicial proceedings or he has entered into a compromise with such a third party, he may not avail himself of the warranty given by the seller. He can however be benefited from warranty if he can show that the latter could not have prevented dispossession. B\) Warranty against defects in the thing: The seller shall guarantee to the buyer that the thing sold conforms to the contract and is not affected by defects in addition to the warranty of dispossession. There are circumstances where the seller gives an express warrant against defect. When a seller uses descriptive terms and the buyer takes them into consideration while making the purchase, the seller has expressly warranted that the goods he delivers will meet that description. Express warranty can be given in a limited manner. Where the seller has warranted during a specified period, certain qualities or the good working condition of the thing, it shall be sufficient for the buyer to inform the seller of the defect before the expiry of such period. It must be born in mind that the fact that the seller has given express warrant does not necessarily mean that he has the obligation to warrant. If the seller can prove that the buyer knew of the defects at the time of the contract, he is not liable on his warranty against defects. According to Article 2295(2) Express warranty given by the seller is void where the buyer knew of the defects in the thing at the time of the contract. To have a valid express warranty, the warranty must relate to the defects that the buyer does not know during the conclusion of contract. The seller does not only warrant for what he has expressly warranted but also for warranties he is presumed to have undertaken by implication. Implied warranties are imposed by law and arise only under certain circumstances and they can be excluded or restricted by the parties as they are not absolute. What shall be taken into consideration is that exclusion or restriction is of no effect when the seller has fraudulently concealed from the buyer the defects in the thing according to Article 2297which provides that: Any provision excluding or restricting the warranty shall be of no effect where the seller has fraudulently concealed from the buyer the defects in the thing. The other limitation on implied warranty is the gross negligence of the seller. The seller is not liable on a warranty against defects which are so obvious that the buyer could overlook them only as a result of gross negligence. However, the warranty holds the seller who has expressly declared that the thing was free from defects or has expressly warranted certain qualities albeit the presence of obvious defects. The seller who can prove that the buyer was not in gross negligence but in knowledge of the defect can, however, be relieved of his warrant liability whatever their agreement is. Express warranty while the buyer is cognizance of the defect does not have effect and for stronger reason implied warranty while the buyer is cognizance of the defect relieves the seller from warranty liability. All defects are not warrantable. Certain defects are warrantable and others are not warrantable. A warrantable defect for which warranty shall become effective according to Article 2289 is where the thing: Does not possess the quality required for its normal use or commercial exploitation; Does not possess the quality required for its particular use as provided expressly or impliedly in the contract; (warranty of fitness for particular use)or; Does not possess the quality or specifications provided expressly or impliedly in the contract (warranty of fitness specified in the contract) Warranty of fitness for normal use obliges the seller to deliver goods that are fit for the ordinary purpose. For example, a person of normal weight who buys a chair should be able to sit on it without it collapsing. The chair should also withstand other things people commonly do with chairs, such as occasionally standing on them or dragging them across the floor. If the chair fails to have such qualities, it is believed not to have the quality required for normal use. Warranty for commercial exploitation exists when the goods are of such quality and in such condition that a reasonable man would accept them under the circumstances of the case in performance of his offer to buy those goods. Thus, to be fit for commercial exploitation the goods must be such as are reasonably saleable under the description by which they are known in the market. For example, Becky bought a tape recorder from Natoly. If Natoly could not resell the tape recorder to another seller, the tape recorder is not fit for commercial exploitation. If Ato Dawit agrees to sell four cans of Nido milk and if it is unsealed, it is not possible to resell. Therefore it does not possess the quality required for commercial use. Warranty of fitness for particular purpose is made to the seller when the seller knows the particular purpose for which the buyer needs the goods and knows that the buyer is relying on the seller to select goods sailable for that purpose. For instance, a person goes to the shop and tells the shop owner that he needs a scissors that will cut cloth. If the shopkeeper knows the buyer is depending on him to pick a suitable pair of scissors, there is warranty that the scissors selected are fit for the buyer's need. Warranty of fitness to specification provided in the contract is available when the thing is described in the contract. In this case, the thing that may serve normal use or particular use may not comply with the specifications in the contract. For example, the seller agrees to deliver a table which is 3 meters long, two meters wide and one meter high. If the seller delivers a table with a width of three meters, the seller is liable on warranty even though the table serves the need of the buyer. C\) Warranty against non-conformity: A seller, in addition to warranty against dispossession and defect, has the obligation to warrant against non-conformity of the thing. Non-conformity can be warranted as of article 2287 if it is warrantable non-conformity and Article 2288 has given positive meaning of warrantable non-conformity. Warrantable non-conformities: The thing is deemed not to conform to the contract where the seller delivered to the buyer part only of the thing sold or a greater or lesser quantity than he had undertaken in the contract to deliver or the seller delivered to the buyer a thing different from that provided in the contract or a thing of a different species as per Article 2288(1) which provides that: The thing shall not be deemed to conform to the contract where: \(a) The seller delivered to the buyer part only of the thing sold or a greater or lesser quantity than he had undertaken in the contract to deliver; or \(b) The seller delivered to the buyer a thing different to that provided in the contract or a thing of a different species. For example, if the seller agrees to deliver 500 kilograms of sugar, the seller breaches the warranty against non-conformity if he delivers a thing different from that provided in the contract or a thing of different species. For example, if the seller agrees to deliver a Sony TV set, he breaches the warranty against non-conformity when he delivers a tape recorder or JVC TV set as tape recorder is a different thing and JVC TV set is a thing of different spec ies. There are certain preconditions and limitations which affect the liability of the seller for warranties of defect of the thing and non-conformity. The time when defects are to be considered, examination of the thing by the buyer, notification of defects, period for suing on a warranty, are among the conditions which affect the effectiveness of warranty. Time when defects are to be considered is one of the preconditions and limitations on which the liability of the seller depends. The conformity with the contract and the absence of defects is to be ascertained having regard to the conditions of the thing at the time of the transfer of risks. Where there is no transfer of risks because of the cancellation of the contract having been declared or the replacement of the thing having been required, then regard is to be given to the time when the risks would have been transferred, had the thing been in conformity with the contract. As an exception, however, the seller is held to his warranty if the non-conformity or the defects occur at a later date and are caused by the seller or a person who he is liable. Examination of the thing by the buyer is also another condition on which the liability of the seller depends and it is the duty of the buyer to examine the thing. The buyer should examine the thing without delay as soon as he has the opportunity. Unless otherwise agreed, the examination is to be carried out in accordance with the usages of the place of examination. Where the buyer intends to avail himself of the results of the examination, he shall in due time invite the seller or his representative to attend such examination, unless the thing is likely to perish. The buyer must examine the thing as soon as he has an opportunity and notify the defects or nonconformity without delay to the seller to avail himself of warranty. Failure to notify the existence of defects may also results in loss of rights of the buyer unless there is a latent defect, i.e. a defect that cannot be disclosed at the time of examination, in the thing. Where the examination discloses non-conformity with the contract or a defect in the thing, the buyer shall without delay give notice thereof to the seller. In notifying the defect, the buyer shall indicate its nature in accordance with custom and good faith. Where the buyer has not notified the seller, he may no longer avail himself of the non-conformity or defects unless the seller admitted their existence. Where a defect which could not be discovered by the normal process of examination, is subsequently discovered the buyer may avail himself of such defect where he notifies the seller as soon as he discovers it. The seller who has intentionally misled the buyer may not avail himself of the fact that the notification of defects has not been sufficiently precise or made in due time. In addition to the above mentioned conditions, there is also period of limitation for suing on a warranty. The buyer must sue the seller within one year from the date of notification of the defects or non-conformity to the contract except when the seller misled the buyer. The parties may provide in their agreement a period exceeding two years for suing on warranty but they cannot lessen this period to less than two years. In this regard, article 2298 provides that: The buyer shall, under pain of losing his right, bring proceedings on a warranty against defects within one year from his having given notice to the seller, unless the seller intentionally misled him. The parties may not shorten this period. Where specified qualities or the good working condition of the thing have been warranted by the seller for a specified period, the time within which the buyer may bring proceedings shall be reckoned from the day when this period has expired Where specified qualities or the good working condition of the thing have been warranted by the seller for a specified period, the time within which the buyer may bring proceedings shall be reckoned from the day when this period has expired. After the expiry of the above period, the buyer may no longer avail himself of the defect or nonconformity. However, where he has not paid the price and he notified the defect or non conformity in due time, The buyer may, however set off against the demand for payment a claim for reduction in price or damages. In a sale of fungible things, the seller may replace defective things by new ones within the period provided for in the contract. In a sale of goods to be manufactured or produced by the seller on the specifications of the buyer, the seller may put right the defects within a reasonable time, even after the expiry of the period fixed for delivery, provided that the delay causes the buyer no substantial inconvenience or expenses. But this will not affect the right of the buyer to claim damages. D\) Other obligations of the seller: The seller does have other accessory obligations as provided in the gap filling provisions. Other obligations of the seller relate to handing over of documents and insurance. If it is customary for the seller to hand over to the buyer documents concerning the thing sold, the seller shall, in addition to delivery, hand over such documents. The documents shall be handed over as carefully and quickly as possible at the place fixed in the contract or provided by custom. The buyer shall not be bound to accept the documents unless they conform to the contract. Where the seller must know from the circumstances that carriage insurance is the custom and where the seller is not bound to contract such insurance himself, he shall provide the buyer with the necessary information to enable him to contract insurance, where the buyer requires such information from him. Obligation of the Buyer The main obligations of the buyer under the contract of sale are the obligation to pay price and the obligation to take delivery of the thing sold. These are the conditions of contract of sale with the exclusion of which no contract of sale can be made. The contract of sale may also include some other obligations such as obligation to cover expenses of delivery which are not an intrinsic element of the definition as they are warranties:. The buyer must appropriately discharge all obligations under contract to avoid suit on non- performance of contract of sale. In this regard, article Art. 2303 provides that: \(1) The buyer shall pay the price and take delivery of the thing. \(2) He shall be bound by any other obligation imposed upon him by the contract of sale. Obligation to pay price The buyer has the obligation to pay the price and take delivery of the thing. The price is the amount of money that the buyer undertakes to pay to the seller in consideration of a thing. It is the cost at which a thing is bought. The obligation of the buyer to pay price includes the obligation to take any steps provided by the contract or by the custom to arrange for or guarantee the payment of price, according to Art 2304. For example, the contract of sale may provide that the buyer should pay the price in check. In this case the buyer must open account in bank and deposit money in the bank from which he orders payment to the seller. Thus, the buyer fails in his obligation to pay price if he does not open an account in a bank. The parties to the contract may agree that the buyer would pay the price after delivery of the thing provided the buyer gives security to the seller. In such case, the buyer's obligation to pay price includes the obligation, for example, to give surety. In many kinds of business, there are customs and practices of the trade that are known by people in the business. Applying these customs and practices in light with providing gap filling rules considering hypothetical contract that is the contracting parties would assume these customs and practices had they been cognizanct of the gap. The buyer has, accordingly, the obligation to pay in accordance with the custom and arrange for or guarantee the payment of the price. For example, assume that the custom in purchase of pharmaceutical products the buyer has to transfer the purchase price through the bank to the seller. In such case, the buyer should take step to transfer the money through the bank. According to Article 2304 (2), the obligation of the buyer to pay price also includes the obligation to accept bills of exchange, to open credit account and to provide bank security. Parties to sales contracts frequently fail to regulate price or leave gaps which might result in unresolved dispute. In such cases, the provision of the Civil Code determines the price in some instances by its gap filling provisions. Such circumstances relate to the absence of fixed price while the price is based on weight of the thing when the thing; has market price, when the buyer accepts excess quantity, when the time and place of payment is not agreed. ? How do you see the validity of a contract whose object (price) is not specifically stated? Price determined by weight: According to Art 2305, if the parties determined the price based on the weight of the thing, the price should be based on net weight rather than gross weight and the new weight is taken into account in the event of doubt. For example, if the seller agrees to deliver 20 quintals at 520 Birr per quintals, he has to deliver a quintal containing 100 Kilograms excluding the weight of the container. Things at current price: If the thing sold has a market price and the parties did not agree on the price of the thing, the buyer should pay the market price. If the seller normally sells the thing and there is no agreement on the price of the thing, the buyer should pay the price normally charged by the seller. In both cases, the place and time of delivery should be considered. For example, if the place of delivery causes the buyer to incur extra expenses, that expense should be included in the price. Likewise, the price should be increased in proportion to the duration of delay in paying price, when the sale is on credit. Quantity greater than agreed: The seller should deliver the quantity of the thing agreed upon in the contract. Where the seller delivers a quantity greater than that provided in the contract, the buyer may accept or reject the excess quantity as he pleases. If the buyer, on the other hand, accepts the quantity in excess, he should pay a price increased in proportion to the quantity delivered to him. For example, A agreed to deliver 10 quintals of sugar to B at 500 Birr per quintal. Instead A delivered 15 quintals. B has an option to accept or reject the additional 5 quintal. If he accepts, he should pay 500 Birr for each additional quintal. Place of payment: If no place is fixed in the contract, the buyer should pay the price at the address of the seller. However, if the contract provides that the price is paid when the thing or documents are handed over, when the price is paid at the place where, under the contract, such thing or documents are to be handed over. Obligation to take delivery of the thing The buyer must take necessary steps to complete the delivery according to article 2313 which provides that: The buyer shall, after delivery, take such steps as may be necessary for completing the delivery of the thing. These necessary steps include the obligation to go to the place of the business of the seller and physically rec eive the thing from the seller or to keep the buyer's store opened if delivery is to be made at the buyer's place. It also includes the duty to accept the thing when the place of delivery is at the residence of the buyer when the thing does not suffer from any defects. The buyer may take deliver by only telling the seller to keep the thing on his behalf. This is the case where the buyer takes delivery through constructive mode of delivery. The buyer's failure to pay the price might be equated to failure to take delivery when payment of the price is a precondition for delivery. Common Obligations of the Seller and the Buyer In the preceding discussions, we have discussed the respective obligations of seller and buyer. The obligations of the contracting parties are not limited to these obligations. They have some obligations in common like obligation to pay expenses, obligation to preserve the thing and obligation to bear unpreventable risk of loss and deterioration. The common obligation of the parties will accordingly be deal with. Obligation to pay expenses The contract of sale may not involve expense when it is an instance sale. For example, when you buy a jacket, you pay the price and take the jacket. You have concluded a contract of sale but you did not incur expenses. However, when contract of sale involves a lot of money, the parties usually make their contract in writing. In such case the conclusion of contract involves certain expenses like advocate's fee for drafting the document incorporating the agreement, expenses for typing, printing and photocopying the document. Sometimes the conclusion of the contract may involve brokers. The remuneration paid to the brokers is an expense of the contract. When the contract of sale involves expenses, the buyer should cover such expense. The obligation of the buyer to pay price sometimes involves expenses like charges by the bank when the money is to be sent to the seller through the bank according to the contract. The obligation to pay price like obligation to open credit account and the obligation to provide bank security are always accompanied by expenses. In addition to expenses of payment and expenses of contract the buyer bears the expenses of transportation when the goods sold is tobe taken to other places than place of delivery. It can be safely concluded that the buyer bears the following expenses: Expenses of a contract of sale; Expenses of payment; Any expense arising after delivery; Expenses of transport where the thing sold has to be sent to another place than the place of delivery and if the delivery is not to be carriage free; Under the discussion dealing with common obligation of the parties, there are certain obligations of the seller. The seller bears the additional expenses incurred by the buyer as a result of changing his residence after the conclusion of contract pursuant to Art 2315. The seller shall pay such transportation expenses when the delivery of the thing is carriage- free as per article 2318. The buyer should bear expenses after delivery like expenses for loading a cargo pursuant to 2317. Where transport of the thing is interrupted by an event beyond the control of either party, the additional transport expenses shall be borne by the party who bears the risks. The seller should bear the expenses of delivery where delivery involves expenses. The expenses of delivery including the expenses incurred for counting, measuring and weighing of the thing sold. Where import customs duties or other duties charging the imported thing are to be paid by the seller and such duties increase after the contract is made, such increase shall be added to the price. Where, however, a delivery bearing such duties has been delayed by the act of the seller or of a person for whom the seller is liable, the additional duties shall be paid by the seller whenever the buyer can show that the increase would not have been due, had the delivery been made at the time fixed in the contract or provided by law. Whenever there is a decrease in customs duties, the price shall be reduced accordingly. Obligation to preserve the thing In addition to bearing expenses, both the buyer and the seller should preserve the thing which has been sold. After delivery of the thing, the ownership transfers to the b uyer. In cases of constructive delivery, the thing belonging to the buyer may remain in possession of the seller. The same is true when the buyer is late in taking delivery or in paying the price. In these circumstances, the seller should preserve the thing belonging to the b uyer. The seller should not neglect the goods. The seller's duty to ensure the preservation of the thing is at the buyer's expense. In preserving the goods the seller may incur expenses as when the seller hires a guard for the purpose of keeping buyer's goods or when the seller keeps the buyer's good in warehouses at his own cost. The buyer should then refund the seller according to Article 2320 of the Civil Code. When the buyer fails to do so, the seller has also the right to reta in the thing until the buyer indemnifies him for the expenses he incurred in preserving the thing. Although risk might be transferred to the buyer, the seller has the obligation to preserve the thing and if the thing is damaged for lack of preservation, the seller will be liable for the damage. Article 2325 (1) indicates that risk is transferred to the buyer from the day when he is late in paying the price. Transfer of risk connotes that the buyer shall pay the price notwithstanding that the thing is lost or its value is altered. This is however true if the loss or alteration of the value of the thing is not attributable to lack of preservation of the seller who is in actual control of the thing. The buyer has also the obligation to preserve the thing at the seller's expense where the thing sold has been received by him and he intends to refuse it either owing to defect or nonconformity. Article 2324 (2) dictates that risk will not be transferred to the buyer even after delivery and the seller is in actual control if he has cancelled the contract, require cancellation or require replacement of the thing. We can infer from this that if the thing which is in the actual control of the buyer is lost or damaged, it is the seller not the buyer who shall cover the price of the thing. However, if the loss or damage is attributable to the noncompliance of the obligation to preserve the thing by the buyer, the buyer will be liable to cover the price of the thing. Even though risk is not transferred to the buyer, his obligation to preserve the thing in his actual control makes him liable. The seller and the buyer may relieve themselves of the obligation to preserve the thing by consigning or selling it in accordance with the provisions of the title of this code relating to „contracts in general' (Article 1779-1783). If for example Ato Yehiya sold 100 kilos of bananas to Ato Waq jira and the buyer died before accepting delivery, Ato Yehiya may be authorized to sell bananas and deposit the money if the person who shall receive performance is not known or refuse to accept. Transfer of risk under contract of sales of movables Like the performance of contract transfer of risk is also of paramount importance in the contract for the sale of goods. As a result this section will deal with the meaning of risk transfer, effect of risk transfer and the ways by which risk is transferred. Upon completing this section students should be able to: Provide the j ustification of risk transfer define what risk transfer is put the effect of risk transfer General Risk is the liability of loss or deteriorations of a thing sold. The thing sold may be damaged, destroyed or lost during transportation. Floods, tornadoes or other natural catastrophes may destroy it. As a result allocating risk some times requires transfer of risk from the seller to the buyer. General principle of economic analysis of contract tells us that risk shall be borne by the person who is in a better position of avoiding the risk or shared when none of the parties is in a batter position of avoiding the risk. Therefore the laws dealing with risk transfer are normatively required to take into consideration the efficient risk allocation. The effect of risk allocation is that the person who bears the risk is to cover the value of the thing which has been damaged or lost. Thus, the basic principle, which is provided regarding transfer of risks in the sale of goods, is that, the buyer shall pay the price notwithstanding that the thing is lost or its value altered where the risks are transferred to him Article 2323 which provides as follows: Where the risks are transferred to the buyer, he shall pay the price not withstanding that the thing is lost or its value altered. The risks shall be transferred to the buyer from the day when the thing has been delivered to him in accordance with the provisions of the contract or of this code. The risk is transferred upon delivery notwithstanding that the thing delivered does not conform to the contract, where the buyer has not cancelled or required the cancellation of the contract or required that the thing be replaced. Risk transfers from the seller to the buyer in the following cases. Delivery Delay of buyer Handing over to carriage The risk transfers to the buyer when the seller delivers the thing to the buyer in any of the modes of delivery. According to Article 1758 of the Civil Code the debtor bears the risk till delivery is made according to the contract. This provision shows that risk is transferred upon delivery and it follows the principle which says res peri demino or risk perishes to the owner or risk follows to the ownership. This way of risk transfer seems to be based on the assumption that when the thing is delivered the person to whom the thing is delivered is in a better position of avoiding the risk and shall accordingly bear the risk. Be that as it may, there are circumstances where the risk is not transferred upon delivery. The buyer must accept the thing to assume its risk of loss or deterioration. The buyer usually accepts when the thing conforms to the contract or when the thing suffers from no defects. The buyer rejects the thing if it does not confirm to the contract or if it is defective when he required the seller to replace the non-conforming things or defective things. Therefore, delivery transfers risk to the buyer only when the thing conforms to the contract. If the thing does not conform to the contract, there must be failure to reject the thing or acceptance of the thing so that delivery transfers risk. Even though it is generally said that delivery transfers risk, there are circumstances where risk transfers without the delivery of the thing. Sub Article (2) of article 1758 shows that risk is transferred to the creditor even if there is no delivery if the creditor is in default for not taking delivery. Sales contract provisions have also provided, in addition to delivery, failure of the buyer to take delivery of goods transfers risk from the seller to the buyer even in the absence of delivery. The risks shall also be transferred to the buyer from the day he is late in paying the price pursuant to Article 2325 although being late in paying the price might result in delay to take delivery. This is an exception to the principle which declares that risk perishes to the owner and in light with risk follows hands. In addition to delay certain additional conditions are attached when it involves fungible things. Where the sale relates to fungible things, the delay of the buyer shall not transfer the risks to him unless the thing, clearly designated for the performance of the contract, has been especially allocated to the buyer and the seller has sent notice to the buyer to that effect. Where fungible things are of such a nature that the seller cannot set aside part of them until the buyer takes delivery, it shall be sufficient for the seller to have performed all the acts necessary to enable the buyer to take immediate delivery. Therefore, the general conditions upon the fulfillment of which risk transfers to the buyer owing to delay in taking delivery of fungible things are: The thing must be designated for the purpose of delivery that is the thing must be identified from other things The thing must be allocated to the buyer, that is, identification alone is not enough. The notice of designation and allocation must be given to the buyer. Thus, default notice alone is not enough. Special arrangement by the parties - term of shipment In addition to delivery and delay of the buyer, handing over of the thing to the carriage also transfers risk in the case of a thing under voyage. Where the sale relates to a thing under voyage, the risks shall be transferred to the buyer from the day when delivery has taken place by the thing having been handed over to the carrier. This is special arrangement where the thing is delivered before the conclusion of the contract. Such transfer of risk allows transfer of risk before the conclusion of the contract. Article 2326 says that where the subject of sale in under voyage (being transported) the risk shall be transferred to the buyer upon delivery by handing over to the carrier. Delivery or handing over of a thing which is under voyage is effected before the conclusion of the contract because it is after delivery the thing can be called things under voyage. Effected deliver transfers risk and delivery is before the conclusion of the contract means risk is transferred retroactively. Hence, it is not illogical inference to say the effect of contract of sale comes be fore the conclusion of contract. However, it is the effect which follows the cause not the cause which comes after effect. In addition to this mistake as to existence of a thing impossibility delivery before the conclusion of contract can also be a challenge for such transfer of risk as risk depends on validly formed contract. For example some number of mobile apparatus was handed over to a carriage on September 7 and a contract of sales for the things under voyage was concluded on September 20. At the conclusion of the contract, however, the things under voyage was destroyed. In this case the risk is transferred to the buyer as of September 7 that it is when the things were handed over. In this case leave alone risk transfer, the formation of valid contract is at issue for the buyer may invoke mistake as to the existence of the contract. It might also be said that there is no contract since the object of the contract relates to impossible object because non-existing object before the conclusion of contract is said to be impossible object. Risk is not transferred in a situation where at the time of the making of the contract the seller knew or should have known that the thing had perished or was damaged. This seems to get it justification from allocating risk to the person who is in a better position of avoiding the risk and the seller who has knowledge or is reasonably expected to know is in a better position to avoid the risk by not entering the contract. However, even though the seller does not know or should not have know, there seems not tenable justification to make the buyer bear a risk for a thing which did not exist at the time of the conclusion of the contract or was perished before the conclusion of the contract. Special consideration is made when there are provisions relating to expenses and the goods are shipped in common. As far as a provision relating to expenses is concerned, any provision relating to expenses stipulated by the parties, especially a provision whereby expenses are to be borne by the seller does not in itself transfer the risks. As far as goods shipped in common is concerned, the risks shall be allocated to each of the buyer in proportion to his share from the day when delivery has taken place by the goods after being handed over to the carrier, where the seller has sent to the buyer the bill of exchange or other document showing that the shipment has taken place. Non - performance and its legal effects Having discussed transfer of risk in section three, non-performance and its legal effects will be discussed. Under non-performance of contract and its legal effects a discussion will be made on the meaning of non-performance and provisions from which the meaning of the term can be inferred will be analyzed. The purpose of remedies of non-performance as its legal effect will be dealt with. The precondition of default notice as a legal effect of non-performance will then be discussed, along with its purposes. After studeying this section student should be able to: Identify whether certain discrepancy between the agreement and the actually performed act is tantamount to non-performance. List the pre-conditions of remedies of non-performance State the time when default notice can be given List the circumstances where default notice is not necessary Meaning of non-performance Non-performance of a contract refers to the failure of the contracting parties to discharge their obligation. Contracting parties assume obligation which emanates from the express agreement of the contracting parties, from the incidental effects of the contract and from the gap filling provisions. When the contracting parties do not comply with these obligations it can be said that there is non-performance of the contract. Even though the definition of non-performance of contract has not been made in the civil code different provisions imply failure to discharge these assumed obligations according to the agreement or with trivial discrepancy. Article 2329, 2331, 2332, 2333 are among the provisions from which the meaning of non-performance of contract can be inferred. Contract of sale is said to be non-performed or breached when either the buyer or the seller or both fail to carry out their obligations under the contract. Usually both parties to the contract for the sale of goods perform the obligations they agreed to in the contract. Occasionally, however, one of the parties to a contract may fail to perform his obligations for different reasons. A buyer, for instance, may fail to pay a purchase price at the agreed place or time or fail to take or receive delivery. Similarly, a seller may change his mind and refuse to deliver a thing sold or a buyer while enjoying a thing purchased may be disturbed by a third party claimant, or the thing delivered may be defective. There is also non-performance of contract when a party not only fails to discharge his/her obligation but also fails to accept performance specially delivery. Article 1779 gives remedy for non-performance by refusal to accept the thing. It can be inferred from this provision that refusal to accept without good cause is non-performance of the contract. Legal effects of non-performance Among the basic functions, which are carried out by contract law, providing remedies for nonperformance of contract is the most important one. Party would be reluctant to enter into a contract in the absence of legal remedy for non-performance of contract. The purpose of contract law dealing with non-performance of a contract is avoiding the deterrence effects of nonperformance on the parties for fear that their contract may not be performed. The legal remedies for non-performance protect the concern of the party whose interest is affected by non-performance. The interest, which might be effected by non-performance of the contract, is the benefit, which could have been gained, had the contract been performed. Accordingly; the remedies are supposed to provide the party with the benefit of the performance of the non-performed or to put the party whose interest is affected by non-performance in a place he would have been had the contract been performed. In addition to the party whose interest is affected by non-performance; the party who fails to perform is required to be protected, in the contract law dealing with non-performance. The cost incurred, as remedying of non-performance should not exceed the reason by expected remedy of that specific non- performance, the party shall be protected from untreatably excessive cost of remedy of non-performance. The general purpose of general contract in providing remedies of non-performance is not peculiar to contract of sales. The purposes, which are required to be met, shall also be secured in contract of sales. The non-performance of the obligation in contract of sales begs striking a balance between the interest of the party who fails to perform and the party for whom the contract is not performed. Taking these interests into account most countries apply forced performance, cancellation and compensation of damage as a remedy of non-performance. Applying these remedies can be considered legal effect of non-performance of contract of sale. Under Ethiopian law of contract and contract of sale, before resorting to the remedies of nonperformance, a contractant that requires such remedies shall put the other contracting party in default, This effect of non-performance of contract of sale, along with the manner of its application, is provided in Articles 1772 to 1775 as a pre-condition of remedies of nonperformance of contract. Art. 1772. - Notice necessary. A party may only invoke non-performance of the contract by the other party after having placed the other party in default by requiring him by notice to carry out obligations under the contract. The connotation, enthroned in this provision is that, default notice is a pre-condition for the remedies of non- performance putting the party who failed to perform in due time incorporates certain purposes. The special provisions of sales contract also provide default notice as a condition for the remedies of non-performance when the date for performance is not compulsory according to 2338(2) and 2348(2) considering its importance. Articles 1773 has been, therefore, provided referring to the forms and time of notice Art. 1773. - Form and time of notice Notice shall be by written demand or by any other act denoting the creditor\'s intention to obtain performance of the contract. Notice may not be given unless the obligation is due. There is no any mandatory formal requirement of default notice. It shall, however, denote the intention of the creditor requiring performance. This intention can be expressed in either written form or any act capable of depicting that an unequivocal expression of intention shall be made. Default notice cannot be made before the time of the performance of the contract. It shall be made when the obligation is due. In addition, the default notice shall include the time for performance upon the expiry of which the creditor will not be accepting performance. The time, for which performance shall be made and upon the expiry of which performance is not accepted, is required to be put and be reasonable according to Art. 1774. Such reasonableness shall be determined taking into account the nature and circumstance of the case. Such circumstance might include whether the party has the object of obligation at hand. Whether it is to be manufactured in the future and the time for its manufacturing shall be considered. It has also been stated that the buyer must notify the seller his intention to require forced performance, within a short period according to Article 2331(1). Thus, the buyer cannot require forced performance for unlimited period whether he has a particular interest or not. The buyer may also fix a reasonable period to the seller for making the defects or non-conformity good. Despite the fact that notice is a pre-condition for someone to resort to remedies of nonperformance there are cases where the remedies can be applied without putting the other party in default. Article 1775, 2338 provides cases when remedies can be applicable without default notice. When the obligation is assumed to be discharged within fixed period of time and that period expires, there is no need for notice. Compulsory date for delivery as of 2338 can the best example where default notice is not important. Such non-performance cannot be rectified by performance following notice once the time expires. A debtor, assuming the obligation of selling birth date cake or selling soft drinks which has market price need not be put in default, if he fails to perform his obligation. The contract can be performed only before the date of the birthday expires and the soft drink can be obtained in replacement. Anticipated non-performance when the debtor declares not to perform the obligation in writing also excludes the pre-condition of notice to rectify non-performance. Reminding someone who declares not to perform has no any tangible effect for he knows the non-performance and he has already refused to do so. In addition to this exclusion of notice for failure to discharge obligation, express stipulation in the contract also have parties apply directly the remedy of non-performance. When the obligation is not discharged in due date and express agreement excluding notice is stipulated in their contract, the effects of non-performance become applicable without notice. Remedies in case of non - performance After putting the debtor in default or if notice is excluded as discussed above, the party to whom performance is required to have been made, may apply to the remedies of non-performance provided under Article 1771. The remedies of non-performance is accordingly aimed at discussing the different alternative and cumulative remedy of non-performance, the preconditions to require and apply each remedies and the guidelines and ways of applying these remedies. This section is therefore aimed at enabling students to list the remedies of non-performance of contract of sale to list the cumulative and alternative remedies of non-performance of contract of sale to state the conditions upon the fulfillment of which the remedies can be effected to specifically put the ways of assessing compensation effect of the remedies of non-performance of contract of sale The remedies for non-performance of obligations in a contract of sale are structured in such a way that the various possibilities are provided with respect to each of the remedies. These remedies have been provided under Article 1771 of the general contract provisions as effect of non-performance of contracts verbally as: \(1) Where a party does not carry out his obligations under the contract, the other party may, according to the circumstances of the case, require the enforcement of the contract or the cancellation of the contract or in certain cases may himself cancel the contract. \(2) He may in addition require that the damage caused to him by non-performance be made good. According to Article 1771, the remedies for non-performance of contract of sale are: Forced (specific) performance Cancellation of the contract Damages The objective of these remedies is to put the party aggrieved by non-performance in the same position as if the contract has been performed so that certainty, security of transaction and optimal cooperation is secured. Forced Performance Forced performance is one remedy of non-performance of contract of sale. Forced performance, as the term implies, is to have the contractant carry out the contractual obligations unwillingly in compliance with the order of the court. Forced performance can be applied as, either specific performance or substituted performance. Forced performance begs the role of court for its implementation. Specific performance is not, however, ordered for the mere reason that it is required by the party. Certain requirement shall be fulfilled in order that the court orders specific performance. Art. 1776. - Specific performance. Specific performance of a contract shall not be ordered unless it is of special interest to the party requiring it and the contract can be enforced w ith ou t affecting the personal liberty of the debtor. Two criteria are put, in this provision to order specific performance. Indispensably the creditor shall have a special interest and the personal liberty of the debtor shall remain intact. These requirements protect the debtor from violation of his right to liberty in civil case. In addition to these conditions of the general contract, in sales contract forced performance can be required when certain failures happen that is when a there is failure to deliver, when there is nonconformity or defects, and non-payment of price. The presence of special interest can be inferred from the importance of the obligation required to be discharged towards the creditor and its possibility of being discharged otherwise. Accordingly, the buyer cannot require forced performance in all cases of non-performance of the obligation to deliver unless the following conditions are fulfilled. First, the buyer must have a particular interest in the thing sold pursuant to Article 1776 and 2329 which provides that: Where the thing has not been regularly delivered, the buyer may demand the forced performance of the contract where it is of particular interest to him. Article 2329 provides „where the thing has not been regularly delivered, the buyer may demand the forced performance of the contract where it is of particular interest to him". The buyer should have a particular interest, no possibility of purchase in replacement and should notify within a short period. The buyer cannot demand the forced performance of the contract where the sale relates to a thing in respect of which a purchase in replacement conforms to commercial practice or such purchase can be effected by him without inconvenience or a considerable expense. The buyer shall lose the right to demand the forced performance of the contract where he fails to inform the seller, within a short period after he has ascertained the delay, of his intention to demand such performance. This period is estimated with particular strictness where the date fixed for the performance of the contract is a compulsory date. Unlike the general contract in the sales contract provision, the requirement of leaving the liberty of individual intact is not provided as a condition. This is because in sales contract there cannot be a circumstance where the liberty of individual is affected. What is done is only attaching the property of the party who failed to perform the contract. The seller may demand forced payment when the buyer fails to pay the price pursuant to Article 2333. Forced performance is the only option where the thing is delivered to the buyer and it cannot be returned as the buyer has already assigned, transformed or the thing is destroyed due to the fault of the buyer. The seller cannot require forced performance when the thing is not delivered to the buyer and the seller can make compensatory sale according to the custom of the market. Compensatory sale is possible when the thing can be sold to other persons. The buyer has a particular interest in the thing sold when no other thing except the thing sold to him satisfies his need. For example, Guyo wants to buy a horse for inorder to participat in a regional horse competition. He bought a horse that was a champion in the national horse competition from Galgalo. Thus, Guyo has a particular interest in the horse he bought. To give additional example of this, in obligation of supplying electricity assumed by corporation can be of special importance as such service is not of trivial advantage rather of paramount importance and such service cannot be given by other party. Secondly, the buyer must not have any possibility of purchase in replacement. In this regard Article 1778 reads: Art. 1778. - Fungible things Where fungible things are due, the creditor may be authorized by the court to buy at the debtor's expense the things which the debtor assumed to deliver. Where the fungible things are due the debtor may have substituted performance be made upon court authorization to buy the thing at the debtors expense. If Ato Shewa fails to perform his obligation of delivering 100,000 of sugar in due time, the creditor may buy the agreed amount of sugar from the market upon court authorization. The price of the sugar would then be covered by the debtor. Article 2330 also provides that: The buyer may not demand the forced performance of the contract where the sale relates to a thing in respect of which a purchase in replacement conforms to commercial practice or such purchase can be effected by him without inconvenience or considerable expense. The buyer cannot require the forced performance if the market usage is to buy the thing from another seller. For example, Becky agreed to buy a 14 inch Sony® TV set from Natoly who deals in TV sets and another electronic goods. Becky cannot require forced performance if it is the custom of the market that the buyer should obtain the good from other seller. Even if it is not a custom in the market, the buyer should obtain the TV sets from other sellers if he could do that without incurring considerable expenses or inconvenience. Thus, if the buyer cannot obtain the thing in the same market it is inevitable that he will incur considerable expenses. For example, the buyer incurs considerable expense if he had bought the thing in Dire Dawa and if that thing cannot be found except in Addis Ababa. When the buyer incurs such an expense he may require it in the form of compensation. It must be born in mind that the buyer may not be awarded with forced performance if the nonperformance is owing to dispossession even though the buyer has a particular interest and the liberty of the seller cannot be affected. This is because contract including contract of sale creates an obligation between the contracting parties only. Forced performance in case of dispossession affects not only the contracting parties but also third parties who have better title that the contractant. Ordering forced performance results in negative externality (affecting third parties). Article 1952 (1) shows that contract shall have effect only on contracting parties. Article 1675 also indicates that a contract can have effect "as between" the contractants. The buyer may require forced performance in case of non-conformity or defects. The buyer who has regularly given notice of the defects may require the seller to deliver new things or the missing part or quality of the things where the forced performance of the contract may be demanded. He may require that the defects be made good by the seller within a reasonable time where the sale relates to a thing which the seller has to make or produce on the specifications of the buyer and where such defects can be made good. Where the buyer's right to decide later as to the form, measurements or other details of the thing is reserved in the contract and he has failed to give such specifications within the time fixed in the contract or on the expiry of a reasonable period of time notified to him, the seller may himself make the specifications according to the requirements of the buyer as he knows them. The seller shall inform the buyer of the specifications of the thing where he has determined them

Sales Contract Definitions and Formation (PDF)

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